To determine which products each country will export based on the law of comparative advantage, we need to calculate the opportunity cost of producing each product in each country.
First, we calculate the opportunity cost of producing LRVs and buses in both countries.
Country A:
- To produce 1 LRV, Country A gives up \( \frac{1000 \text{ buses}}{500 \text{ LRVs}} = 2 \text{ buses per LRV} \).
- To produce 1 bus, Country A gives up \( \frac{500 \text{ LRVs}}{1000 \text{ buses}} = 0.5 \text{ LRVs per bus} \).
Country B:
- To produce 1 LRV, Country B gives up \( \frac{1350 \text{ buses}}{450 \text{ LRVs}} = 3 \text{ buses per LRV} \).
- To produce 1 bus, Country B gives up \( \frac{450 \text{ LRVs}}{1350 \text{ buses}} = 0.333 \text{ LRVs per bus} \).
Comparative Advantage:
-
Buses:
- Opportunity cost in Country A: 0.5 LRVs per bus.
- Opportunity cost in Country B: 0.333 LRVs per bus.
- Country B has the lower opportunity cost for producing buses.
-
LRVs:
- Opportunity cost in Country A: 2 buses per LRV.
- Opportunity cost in Country B: 3 buses per LRV.
- Country A has the lower opportunity cost for producing LRVs.
Conclusion:
- Country A will export LRVs (since it has a comparative advantage in LRVs).
- Country B will export buses (since it has a comparative advantage in buses).
Thus, the correct statement is:
Country A exports LRVs and Country B exports buses.